WaMu’s Contactless Plunge Could Win over Skeptical Merchants

Washington Mutual Inc.'s announcement this week that it plans to issue 12 million to 15 million debit cards with MasterCard Inc.'s PayPass contactless functionality this year may do more than make the $328 billion bank the No. 1 PayPass issuer. It just might give the nascent contactless market enough critical mass on the cardholder side to get skeptical merchants to pay more attention to the technology. “This certainly adds some credibility to the business case for contactless,” says Nick Holland, senior analyst with Boston-base Aite Group LLC. “I'm more optimistic than I was a couple of months ago.” Holland has estimated that only about 40,000 locations, or 0.5% of U.S. merchant outlets, accept contactless cards (Digital Transactions News, Feb. 4). The estimated number of contactless cards outstanding is about 19 million. A payment network, of course, needs merchant locations in addition to cardholders. Nandita Bakhshi, division executive, Consumer Deposit Products at Seattle-based WaMu, says the bank is working with MasterCard to convince merchants that consumers like so-called tap-and-go cards for small transactions now done mostly by cash, and hence there is a reason for them to install terminals that communicate with the radio-frequency cards. “It's a little bit of a chicken and egg,” she tells Digital Transactions News. WaMu's decision to roll out PayPass in a big way follows the switch of its debit card allegiance from Visa Inc. to MasterCard (Digital Transactions News, Jan. 7, 2005). Last year, the bank, which has 2,500 branches and offices, or stores as it calls them, conducted a stealth test of PayPass cards in New York City. Bakhshi refuses to give details such as card numbers, but says customers liked them and results were good at those merchants that have contactless terminals, especially quick-service restaurants such as McDonald's Corp. where fast payment is critical to customer throughput. The New York test even included a “quick pilot” in some taxicabs, she says. Washington Mutual is planning a broad marketing campaign that includes branch merchandising, statement inserts, ATM screen messages, and event marketing. It's already held one event in New York at which actor Steve Zahn paid for customers' popcorn and treats with a PayPass card one day at an AMC Theaters movie house in Times Square. WaMu actually started rolling out PayPass acceptance in January by offering the card to new customers of its free checking account and to all small-business customers. In March, the bank starting replacing debit cards coming up for renewal with the PayPass Debit MasterCard. Bakhshi would not say if MasterCard is subsidizing the cards, which cost about $1 more than the 20 to 25 cents for a conventional magnetic-stripe payment card. Aite estimates that JPMorgan Chase & Co. is the top U.S. contactless card issuer. About possibly becoming No. 1, Bakhshi says: “I would be OK with that.”